No June Swoon This Year…

Posted on July 1, 2021 by George Mahfouz

No June swoon this year, these markets are simply not having it. June historically can be either a slow month or a month of selling pressure. Neither really happened this year. Despite a brief dip in the major averages a couple of weeks back due to inflation concerns, stocks and indexes held their own last month. The Dow Jones Industrial Average (see chart here) closed out the month at 34502, the S&P 500 (see chart here) finished the month just shy of 4400, the Nasdaq Composite (see chart here) closed out the month in record territory at 14503 and the small-cap Russell 2000 (see chart below) finished the month and first half of the year at 2310.

I remain in awe of the resiliency of stocks and most every other asset class out there. I read the other day that Facebook (NasdaqGS: FB) has become the fifth company in the United States to surpass the $1 trillion value mark. We now have in our country five companies that are valued at over $1 trillion dollars. Apple (NasdaqGS: AAPL), Amazon (NasdaqGS: AMZN), Microsoft (NasdaqGS: MSFT) and Alphabet aka Google (NasdaqGS: GOOGL) round out the top five trillion-dollar companies. When I see this type of action it makes me wonder how much earnings power do these companies need to continue to exhibit in order to keep their eye-popping valuations going? One other obvious similarity is the companies are all tech stocks and that is where the real growth has been. If you go back 20 years, I don’t think anyone would of expected five companies in our markets all reaching and boasting trillion dollar plus valuations. Heck, Microsoft’s market cap just surpassed $2 trillion dollars to join Apple as the only companies with more than a $2 trillion dollar valuation. Folks I am not a forensic analyst, but my goodness how is the law of large numbers playing a role here?

As I look at the technical shape of the major averages nothing really stands out to me with the exception of the Nasdaq Composite (see chart here). The Nasdaq has just entered overbought territory according to the relative strength index aka the RSI. The Nasdaq also just hit an all-time high so I think some sort of pullback could potentially be in the offing.

Have a safe and happy 4th of July weekend 🙂

~George

One Hot June!

Posted on July 1, 2019December 1, 2019 by George Mahfouz

One hot June indeed and I do not mean the weather folks! Stocks and commodities went on a tear in the month of June logging the best June in decades for some of the indexes and other asset classes. The Dow Jones Industrial Average (see chart here) soared over seven percent last month. The S&P 500 (see chart below) hit an all time high in the month of June while both the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) notched impressive gains as well. What’s more is both oil and gold surged right along side of the key indexes.

So why the rally? I think the answer is simply an easier monetary posture by the Federal Reserve. It is no secret that inflation is well in check and it is also becoming apparent that the U.S. job market is cooling off. Another factor for the Fed to consider is what impact would a full blown trade war with China do to the U.S. economy? This is why in my opinion we are seeing a continuing upward trend in our markets and that is a dovish Fed is usually very good for stocks. One other factor that will certainly weigh in is the upcoming earnings reporting season. Now that the second quarter of the year is in the books we will see how well corporate America did in Q2 as earnings reporting season gets underway this month. I will continue to look to monitor how “top-line” growth is faring.

Let’s take a quick look at the technical shape of the key indexes. After surging over 7% in June, the Dow Jones Industrial Average (see chart here) remains clearly above its 20-day, 100-day and 200-day moving averages as does the S&P 500 (see chart here). The Nasdaq Composite (see chart here) is in a healthy technical condition and last but not least, the small-cap Russell 2000 (see chart here) has broken above its key moving averages. This is a very good sign for stocks and furthermore none of indices are in overbought territory according to the principles of the RSI also known as the relative strength index.

Both Paula and I wish everyone a very safe and Happy 4th of July holiday 🙂

~George

S&P 500 - Paula Mahfouz

Volatility Wakes Up!

Posted on May 1, 2016 by George Mahfouz

After weeks of tepid volatility (chart) investors and markets appear a bit jittery with volatility waking up. For the week, the Dow Jones Industrial Average (chart) closed down 1.3%, the tech-focused Nasdaq (chart) closed off 2.7%, the S&P 500 (chart) closed lower by 1.3% and the small-cap Russell 2000 (chart) finished lower on the week by 1.4%. As first quarter earnings reporting season begins to wind down with overall results coming in mixed, we now enter a time of year where weakness in stocks can occur with volatility even more prevalent. The old adage “sell in May and go away” could come into play.

The currents risks to the market as I see it is the market itself as valuations are historically high with the S&P 500 price to earnings ratio trading in the 20’s. Another risk to stocks is the possibility of the Fed raising rates in June. These catalysts alone could be all that it takes for equities to not only pause but to continue to experience increased volatility as we head into the summer months. So now let’s look at the technical shape of the aforementioned indexes. After trading near or in overbought territory for the past month or so the Dow Jones Industrial Average (chart) broke through its 20-day moving average, the S&P 500 (chart) also broke through its 20-day moving average, however, a bit more troublesome is the Nasdaq (chart) as it has broke through its 200-day moving average this past week, a moving average that is more closely watched. Finally, the small-cap Russell 2000 (chart) is now sitting right at its 20-day and 200-day moving averages. So the technical shape of the markets at least according to moving averages support lines appear to be breaking down a bit.

So as we head into a typically softer time for equities that is May and June, and considering the current technical shape of the markets, both Paula and I feel it would be best to move to the sidelines and see if the current increase in volatility continues or if this is just a pause in the sharp rally we have seen since the middle of February.

Good luck to all 🙂

~George

A Weak Week For Stocks…

Posted on June 1, 2015June 1, 2015 by George Mahfouz

Stocks closed out the final week of May on a softer note with the Dow Jones Industrial Average (chart) falling 221.34 points, the Nasdaq (chart) lost 19.33 points, the S&P 500 (chart) -18.67 points and the small-cap Russell 2000 (chart) closed the week lower by 5.69 points. Considering the record closing highs that have been set over the past month or so, its no surprise that equities took a bit of a breather.

Now that we are in the month of June, let’s see if this seemingly temporary pause turns into something more meaningful. The month of June historically is a unfavorable month for stocks and this year may be no different. In fact, in this trading week headline risks are abound. Internationally speaking, without a doubt Greece’s debt talks will continue to grab the attention of investors this week as well as the ECB’s central bank meeting. Here in the states, traders will continue to pay attention to the continuing strength of our dollar as well as May’s jobs report at the end of the week. As you can see there are plenty of catalysts that could become market moving events.

Technically speaking, the aforementioned indexes are finding support at their respective 50-day moving averages and none of these indices are in overbought or oversold territory according to the relative strength index (RSI). One technical point I do want to make is when stocks were setting records earlier in May, the volumes associated with those records were on the lighter side. As mentioned in my previous blog, my preference would of been to see these records being set with much stronger volume.

Have a great week and good luck in the month of June 🙂

~George